Financial Market News

Week of October 16, 2011 thru October 22, 2011

PARIS (MNI) - The following is the second part of the new debt
sustainability report published Friday by Greece's official lenders and
reprinted in UK daily The Telegraph.

"Permanent growth and interest rates shocks can lead to
unsustainable debt dynamics:

- Growth. Results can be very sensitive to growth outcomes. Fixing
the primary balance, permanently lower growth (-1 percentage point each
year) would render debt clearly unsustainable, while higher growth (+1
percentage point each year) would lead debt to fall to just under 130
percent of GDP by 2020.

PARIS (MNI) - Greece's official creditors released a report late
Friday indicating that much bigger haircuts on Greek sovrereign bonds
will be required to get the country's outstanding debt load down to
anything resembling long-term sustainability.

With a haircut of 50%, for example, the Greek public debt ratio
would be cut to 120% of GDP by 2020 -- still extremely high -- the
report argued. To get it down below 110% by 2020, it would require
haircuts of 60% or more on Greek bonds, the report added.

If only the 21% haircut from the July 21 private sector deal were
applied, Greece's debt ratio would top out at a whopping 186% of GDP in
2013, and would still be at 152% by the end of 2020.

Reaching that level will require European banks to raise about E100
billion in new capital, the source indicated.

Tier 1 capital is the most basic form of bank capital, consisting
mostly of equity and retained reserves.

Ministers have not come to an agreement yet on the level of
write-down that banks will be asked take on their Greek sovereign debt
holdings, the source said. But he indicated that they are working on a
model based on the Greek debt sustainability report issued to Eurozone
member states on Friday.

BRUSSELS (MNI) - Eurozone finance ministers will return to the
negotiating table Saturday afternoon in an emergency meeting for further
talks on a plan to recapitalize European banks and increase the haircut
on privately-held Greek sovereign debt, a senior EU official told Market
News Int

BRUSSELS (MNI) - Eurozone finance ministers will return to the
negotiating table Saturday afternoon in an emergency meeting for further
talks on a plan to recapitalize European banks and increase the haircut
on privately-held Greek sovereign debt, a senior EU official told Market
News Int

BRUSSELS (MNI) - Banks need to write off a "substantial" proportion
of their sovereign Greek debt holdings in order to restore credibility
to the Eurozone rescue effort, Swedish Finance Minister Anders Borg said
Saturday.

BRUSSELS (MNI) - European authorities must demonstrate their
ability to forge a comprehensive response to the Eurozone debt crisis if
they are to regain the confidence of financial markets, Jean-Claude
Juncker, the head of the Eurogroup of Eurozone finance ministers, said
Saturday.

CHICAGO (MNI) - The need to manage cash reserves is a part of
today's market environment and is fueling demand for exchange-traded
fixed-income vehicles at the short end of the curve, said Natalie
Zahradnik, an ETF strategist for PIMCO.

NEW YORK, Oct. 21 (MNI) - Despite persistent doubts that measures
expected to be announced at the upcoming eurozone summit will provide a
sustained backstop for risk, there was mild optimism Friday that, at
least, a set plan would allay market jitters in the short term.

WASHINGTON (MNI) - Though not of the scope of Gov. Daniel Tarullo's
proposal that large-scale MBS purchases by considered, Federal Reserve
Vice Chairman Janet Yellen Friday raised the possibility of Fed
securities purchases across a "wide spectrum" of maturities, not just
the Operation Twist lengthening of maturities.